Intel taps COO Krzanich as chipmaker’s next CEO

Originally published May 2, 2013 at 1:26 pm

Updated May 2, 2013 at 3:31 pm

Intel, one of the pillars of Silicon Valley, is following its traditions and promoting an insider to the job of CEO. The world's largest chipmaker is tasking Chief Operating Officer Brian Krzanich with steering it through an industry shake-up that is seeing tablets and smartphones overshadow Intel's base in personal computers.

Intel, one of the pillars of Silicon Valley, is following its traditions and promoting an insider to the job of CEO. The world’s largest chipmaker is tasking Chief Operating Officer Brian Krzanich with steering it through an industry shake-up that is seeing tablets and smartphones overshadow Intel’s base in personal computers.

Intel announced Thursday that Krzanich will replace Paul Otellini on May 16. Six months ago, Otellini, 62, announced his surprise decision to resign and will end a nearly 40-year career with Intel, including eight years as CEO.

Krzanich, who is 52 and spent his entire career at the company, comes out of a manufacturing organization where meticulous attention is required to churn out processors with billions of minute details.

Intel processors are the brains behind four out of every five PCs, but the company has been scrambling as PC sales plummet and people spend money instead on smartphones and tablet computers. Those mobile devices need processors that use less battery power, a technology Intel has only just mastered.

In an interview, Krzanich said he will tackle the challenge of declining PC sales by relying on the assets that Intel is built on: its engineering prowess and enormous, billion-dollar chip factories, which feature technologies that are years ahead of its competitors.

“Those assets will be focused more and more toward the ultra-mobility space … tablets and phones,” Krzanich told The Associated Press. “These are areas that we need to build a presence in, and we have the assets to bring to bear on it. And those are the same assets that have made us so successful in the past.”

Krzanich’s appointment was not surprising. The chief operating officer job is the traditional stepping-stone to the CEO post at Intel. Both Otellini and his predecessor, Craig Barrett, held that job before becoming CEO.

Krzanich isn’t inheriting Otellini’s title of president. It will go instead to software chief Renee James, 48, creating a two-person “executive office” at the head of the company. James had been another candidate for the CEO post, along with Stacy Smith, chief financial officer and director of corporate strategy.

Krzanich said the division of labor was his choice. He said he and James put together a strategy for getting into mobile chips, and when the board picked him as CEO, he requested that James become his second-in-command.

“The best way to go implement (the strategy) quickly is to have two people in the leadership team going forward so you can work twice as fast,” Krzanich said.

Krzanich didn’t elaborate on the strategy he and James developed. Analyst Doug Freedman at RBC Capital Markets said that even though Krzanich is an insider and the expected CEO pick, he could still be preparing to steer the company in new direction, one where Intel is less focused on being a technology driver and more focused on helping its customers develop their products.

“Our view is Krzanich’s appointment was awarded as a result of changes in the future direction of the company, with these changes expected to become visible over the next few quarters,” Freedman said.

Patrick Moorhead, an analyst with Moor Insights & Strategy, said James’ promotion is a reflection of the importance of software at Intel today. Of the employees needed to create a new smartphone chip, 60 percent to 70 percent will be working on the software the chip needs to work and communicate with the rest of the phone, he said.

Krzanich started at Intel Corp. in 1982 as a process engineer in New Mexico after graduating from college with a chemistry degree. He worked his way up through the manufacturing side of the business to become COO in January 2012.

Krzanich will be Intel’s sixth CEO since its founding 45 years ago. The relatively slow turnover reflects Intel’s success and its foundation as an operator of billion-dollar factories that take years to pay off.

Intel started out mainly as a maker of memory chips, but vaulted into the global limelight with the launch of IBM Corp.’s first PC in 1981. Intel supplied the central processor for that PC and has managed to maintain its position as the dominant supplier in the market, despite many challengers.

Now, however, PCs are losing their appeal, and the company is scrambling get into the market for chips for smartphones and tablet computers. That market has no equivalent of Intel as a dominant supplier. Instead, a bevy of companies create chip designs based on underlying blueprints supplied by ARM Holdings PLC of Britain, then contract with Asian chip factories to have them made.

ARM’s blueprints were created with battery-powered devices in mind and have had a big advantage over Intel chips when it comes to prolonging battery life. Intel’s chips were originally designed for machines that were plugged into a wall. Only recently have they matched the low power consumption of ARM chips.

But ARM chips are entrenched as the choice for iPhones, iPads and Android phones and are already undercutting Intel’s financial performance and standing among investors. Last year, both Intel’s earnings and stock price fell by 15 percent from 2011.

Intel still expects its sales to grow this year, propped up by the production of chips for business PCs and servers. It’s also counting on a new generation of power-sipping processors to boost Intel’s presence in tablets.

Moorhead said phone makers won’t be able to ignore Intel once it introduces a new chip manufacturing process next year, which should give it a substantial advantage in the power and price of its chips. That could mean that phone makers would start buying Intel’s chips, or have chips of their own designs made to order by Intel.

Otellini joined the Santa Clara, Calif., company after graduating from nearby University of California at Berkeley. He worked his way up the ranks before succeeding Barrett as CEO in May 2005.

Intel’s board wasn’t entirely satisfied with Otellini’s performance last year. To reflect its disappointment, the board’s compensation committee trimmed the cash portion of Otellini’s incentive pay by 19 percent from the previous year to $5.23 million. But his overall pay package, including stock awards, grew 10 percent to $18.9 billion, and the board said it wanted to keep him when he revealed his decision to retire. The board had expected him to remain CEO until he turns 65 in 2015.

Intel said Krzanich will have an annual salary of $1 million and could get a $2.5 million cash bonus. In addition, he’s getting stock and options worth $6.5 million, for a total possible 2013 compensation of $10 million.

James is a 25-year veteran of Intel and has led the company’s expansion into providing software for a variety of applications, including smartphones. She was also in charge of dealing with software companies like Microsoft Corp.

Intel’s stock rose 12 cents, or less than 1 percent, to close Thursday at $24.11.